Inflation, natural disasters will impact Asia-Pacific reinsurance in 2023
In 2023, insurers in the Asia-Pacific region will continue to combat their exposure from risk related to the ongoing war in Ukraine, GlobalData says.
Over the last three decades, the Asia-Pacific region has experienced the highest number of Nat-Cat events of any spot on the globe, and a recent report from GlobalData shows that these natural hazards – which included flooding, drought, typhoons, earthquakes and heatwaves in 2022 alone – combined with inflation could hinder growth in the region’s reinsurance market in 2023.
The top reinsurance markets in the region are Japan, China, Australia, Hong Kong and South Korea, which held a collective 84% share of the Asia-Pacific market as of 2021. MunichRe estimates the region suffered around $70 billion in losses in 2022, with around $10 billion of that loss insured.
“Increase in cost of claims due to the high inflation is adding pressure on reinsurers’ profitability. To reduce this, reinsurers are limiting coverage on loss-making lines, raising premiums, and pushing for higher deductibles by insurers,” GlobalData Senior Insurance Analyst Deblina Mitra said in a release. “This in turn will prompt insurers to increase premium prices and retention levels to make a reserve for higher deductibles. For instance, Australian insurer IAG, in its January 2023 renewal of catastrophe reinsurance programs increased retention by 75% compared to July 2022.”
Where consumer inflation in the Asia-Pacific region is concerned, India was hit hardest in 2022 with inflation of 6%, followed by New Zealand (5.1%), Australia (4.4%) and Thailand (4.4%). Japan saw the lowest inflation for the year at 1.6%, followed by China at 2.1%.
GlobalData predicts insurance lines involving things like aviation, marine and political violence will remain vulnerable to losses due to the ongoing Russia-Ukraine war in 2023. Insurers in the Asia-Pacific region will also likely struggle to find appropriate coverage for other war-related risks, like those related to the supply chain.
“In 2023, reinsurers in APAC will focus on risk management and limit their loss exposure due to the ongoing Russia Ukraine conflict and high inflation,” Mitra continued in the release. “The long-term growth, however, will remain stable due to favorable regulatory developments which will create new business opportunities for reinsurers.”